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10 Reasons the Stock Market Will Move Lower in 2010: Part 2

By Edited Nov 13, 2013 0 0

Dow Jones Bearish Rising Wedge Pattern:

Since the 2009 bear market rally began, the Dow Jones has been forming a huge rising wedge pattern on its daily candlestick chart. A rising wedge is an overall bearish pattern that takes prices higher and higher until they converge to a point. As the pattern takes shape, volume will contract and become anemic until the pattern breaks and volume surges. The upper and lower trend lines of the price action form what appears to be a wedge on the chart. When price nears the apex of the triangle, price action becomes tight and more often than not breaks sharply to the downside. Sometimes price will shoot above the upper trend line of the wedge for a brief period before moving lower. The wedge pattern breaks when price moves below the lower boundary of the wedge.

The Dow has managed to hold its lower trend line but it is nearing the apex of the wedge. Volume has continued to shrink, and currently price is resting on the lower trend line near the 10,500 level. It may have one last thrust higher to test the upper trend line near the 11,000 level but it will be short lived. When these patterns break, price will plummet lower to a target price. The target price of this rising wedge pattern suggests that the Dow will at least drop to the 9,100 level.

Dow Rising Wedge

Whether it continues lower from this point or not is yet to be seen. Some rising wedge patterns cause prices to eventually move all the way back to the base of the wedge. In this case, it would take the Dow back down to the 6,600 level. This move would cause a double dip recession which has been on the minds of many analysts over the past year.

The Dow wedge pattern should break down in the early part of 2010. The move down to the 9,100 level later this year will represent a 13% drop for the market. Prices may bounce around at this support level for awhile, but it's hard to imagine they will rebound back above the 10,500 level by the end of the year. The stock market saw a great rebound in 2009, but it's time for the great bear market to resume its downtrend.



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